Barron's Love-In Can't Help GE (GE)

Generally when Barron's runs a positive story on a company, the shares of the firm rise. The publication has been around for decades and it distributes over 300,000 copies each week. Recently, Barron's had an upbeat story on GE (NYSE: GE). The shares rallied, but a few days later they had fallen back to previous levels.

Media Power
Barron's is one of the media outlets that can move stock prices. It has had that distinction since before the days of Jim Cramer.

The magazine's view of GE made a contrarian case for the shares. Over the last two years, they are up less than 5%. Much of that has come recently on Wall Street speculation that the company could be worth more if it were broken into pieces. (To learn more on sum-of-the-parts valuation, read Conglomerates: Cash Cows Or Corporate Chaos?.)

Barron's sees the share price of GE, which is around $37 now, rising to $50. If all of the magazine's theories about the company are true, that might happen. Revenue and profit from financial services would have to become less of a factor, and industrial and infrastructure earnings would have to rise.

Investors are concerned about credit quality in the company's financial portfolio and in the latest quarter subprime loans did hurt earnings.

It is also attempting to weed out underperformers in its vast collection of companies. For example, its plastics unit, which was a drag on earnings, was recently sold.

Can't Shake Poor Perceptions
What Barron's cannot do is convince Wall Street that GE's management can get all of the pieces working together. In the last quarter, the company's revenue rose from $38 billion in the quarter last year to over $40 billion. Net earnings rose from just over $4.4 billion to $4.5 billion.

The quarter was mixed when it is taken segment by segment. Infrastructure and commercial financial segments did well and made up almost 60% of operating profit. But, consumer financial and the industrial unit did poorly. NBC Universal showed very little progress.


To Get the Stock Up
To get its shares out of the mid-$30s, GE has to do something more than talk about the rapid growth the company is expecting in emerging markets, particularly India and China. There is no question about the potential in these markets, but they are not known for their stability and a heavy-handed government in Beijing could do a great deal to set back any business in China. GE's investor relations efforts are based on a future that is more than a year or two away. It doesn't appear that Wall Street is willing to give the company the benefit of the doubt between now and then.

So much for Barron's moving stock prices.


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